Vince Cable said banks have refused to show how they are linking directors' pay to small business lending, as agreed under Project Merlin.

Asked about how the much-hyped settlement is playing out in the banks, Mr Cable told the Business Select Committee: "We don't know because they won't tell us."

Mr Cable told the MPs he had written to the banks this week to demand they release the information. He said that if the banks don't stick to Project Merlin, then the Government would also be "absolved of its commitment to show restraint" in dealing with the banks.

The Business Secretary's comments show an alarming rift between the Coalition despite the Project Merlin peace talks earlier this year.

Mr Cable suggested that Royal Bank of Scotland and Barclays were being particularly unhelpful. He said: "Some banks are trying harder than others" to meet agreements on business lending. He added: "Lloyds and Santander have been completely up front about what they're doing."

He said that the Government was "unable to penalise individual banks" but could use the tax system to punish the whole sector. "We do have the option of approaching the taxation of profits or bonuses or balance sheets in a more forceful way - that's certainly is one of the sanctions open to government," Mr Cable said.

Under the terms of Project Merlin, the banks promised to lend £190bn to businesses this year - and that the level of bonus payments would be linked to that target.

Recent figures from the Bank of England showed that the lending targets were being missed.

Business groups and unions were showing signs of impatience with Mr Cable's repeated threats.

David Fleming, Unite national officer, said: "Vince Cable along with the rest of this government have done nothing but make grand statements on banking reform. Action is what is needed, not more banking rhetoric."

Adam Marshall, director of policy at the British Chambers of Commerce, said: "Restoring trust between businesses and banks relies on more than just meeting lending targets. Banks should reconsider how they communicate with business customers, and be able to make decisions at a local level about their financing needs."